Stock split makes
shares of a firm cheaper. This will attract more investors to trade in the
stock. Some term it as a play on the psyche of the investor.
Mr. Arun Kejriwal,
Founder, Kejriwal Research & Investment Services, says,
"Psychologically, a stock looks cheaper & this attracts investors and
trading in the scrip. When a share's price runs up, smaller investors find it
easy to enter or / buy the stock and trading in the stock also increases, which
may have decreased due to high prices.
" And, this is
true not only for small investors but even the big ones are more inclined to buy
a stock cheaper.
The split does not
affect the value of investors' holdings. Similarly, the firms's fundamentals do
not change, with its earnings & equity capital base remaining the same. It
is simply splitting higher denomination in to lower denomination. Since the
stock split does not change anything for a company from a fundamental
perspective, experts caution investors against buying such shares merely
because they are cheap.
They say investors
should stay clear of firms, which use stock splits only to stay afloat.
